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Foreign Currency Loans - Demand or Supply Driven?

Martin Brown (), Karolin Kirschenmann and Steven Ongena ()

No 7952, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Motivated by concerns over foreign currency exposures of banks in Emerging Europe, we examine the currency denomination of business loans made in Bulgaria during the period 2003-2007. We analyze a unique dataset including information on the requested and granted currency for more than hundred thousand loans granted by one bank to sixty thousand different firms. This data set allows us to disentangle demand-side from supply-side determinants of foreign currency loans. We find that 32% of the foreign currency loans disbursed in our sample were actually requested in local currency by the firm. Our analysis suggests that the bank lends in foreign currency, not only to less risky firms, but also when the firm requests a long-term loan and when the bank itself has more funding in euro. These results imply that foreign currency borrowing in Eastern Europe is not only driven by borrowers who try to benefit from lower interest rates but also by banks hesitant to lend long-term in local currency and eager to match the currency structure of their assets and liabilities.

Keywords: banking; foreign currency debt (search for similar items in EconPapers)
JEL-codes: F34 F37 G21 G30 (search for similar items in EconPapers)
Date: 2010-08
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Related works:
Working Paper: Foreign Currency Loans - Demand or Supply Driven? (2011) Downloads
Working Paper: Foreign Currency Loans - Demand or Supply Driven? (2010) Downloads
Working Paper: Foreign Currency Loans - Demand or Supply Driven? (2009) Downloads
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